I am interested in knowing whether the “inverted-U” relationship between the degree of centralization in the collective bargaining and the unemployment rate is still valid. I am interested both in top research papers and in those ones with a more informative (less technical) aim.
Thanks in advance
That is very interesting point.
While Elemeskov et al. (1998) reported evidence supporting the hump-shape relation, OECD Economic Outlook of 2004 and Aidt and Tzannatos (2002) support the idea that this hump-shape has disapeared over the nineties:
"Comparing average unemployment rates across the three CC [centralisation-coordination] levels suggests that this facet of wage bargaining has not been a predominant determinant of unemployment performance. Unemployment was substantially lower for the intermediate CC countries in the 1970s, than for countries with higher or lower CC, precisely the reverse of the humpshaped relationship proposed in Calmfors and Driffill (1988). By contrast, the high CC countries performed best according to this criterion during the 1980s and there has been next to no relation between unemployment rates and CC since 1990." (OECD, 2004, p.157 and following).
In the same line, Forni (2004) extends the same exercise of CD to the nineties (up to 2000) with OECD panel data. He finds a decreasing in the significance of the hump-shape hypothesis. Maybe the problem is that he is considering a whole long period for his analysis (1962-2000).
Calmfors (2001) affirms that foreign competition could have flattered the hump-shape curve. But, on the other hand, he supported with some more recent literature the CD hypothesis and papers for a monotonic relationship (Table 3 of the paper).
To sum up, I think nowadays the relation is not as clear as in the CD hypothesis but also a robustness analysis is quite difficult to get because of the different frameworks of the different countries related to the legislation about collective bargaining.
- Aidt, T. and Z. Tzannatos (2002), Unions and Collective Bargaining, Economic Effects in a Global Environment, The World Bank, Washington DC, United States.
- Calmfors, L. (2001): "Wages and Wage-Bargaining Institutions in the EMU. A Survey of the Issues”, CESifo Working Paper, n 520.
- Forni (2004) available at: http://www.lforni.it/ResearchAndPublications/Papers/3-centralization%20of%20wage.pdf
- OECD 2004 available at: http://www.oecd.org/employment/emp/34846881.pdf
I am adding some other references. In general, my reading of the literature leads me to conclude that there is no clear relationship between centralization/coordination of the wage bargaining and labour market outcomes (unemployment/employment), although it seems that more centralized/coordinated bargaining brings about a more less wage inequality. In fact, what matters is the 'configuration' (or mix) of institutions to influence unemployment(employment.
Bassanini, A. and Duval, R. (2006), “Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions,” OECD Economics Department Working Papers No 14, June. [Chapter 7 in OECD (2006), Employment Outlook, Paris, is based on this paper].
Baccaro, L. and Rei, D. (2005), “Institutional determinants of unemployment in OECD countries: A time series cross-section analysis (1960-1998)”, Discussion Paper 160, International Institute for Labour Studies.
Sturn, S. (2013), “Are corporatist labour markets different? Labour market regimes and unemployment in OECD countries”, International Labour Review, 152(2), 237-254.
Howell, D., Baker, D., Glyn, A. and Schmitt, J. (2007), “Are protective labor market institutions at the root of unemployment? A critical review of the evidence”, Capitalism and Society, 2(1), article 1.
Hi!
Marta and Carlos both made very interesting points and singled out interesting references.
I would like to add something, viz. that it may be useful to distinguish between centralisation and coordination. Highly centralised wage bargaining may give pretty different outcomes depending on the extent to which wage-setters coordinate among themselves and with other agents. Similarly, trade union power has per se a significant positive impact on unemployment (through wage setting), but highly coordinated bargaining may completely offset the negative impact of unionism on employment. Notable (but old) references on this include:
Nickell S., Layard R., 1999. Labour Market Institutions and Economic Performance in Ashenfelter O., Card C. (eds), Handbook of Labor Economics, vol. 3 (Amsterdam: North Holland).
Booth A., Burda M., Calmfors L., Checchi D., Naylor R., Visser J., 2000. What do Unions do in Europe?, A Report, Fondazione Rodolfo DeBenedetti, Milan.
At the price of looking parochial, I would like to add some references that highlight the relevance of this distinction for labour market performance in different set-ups:
Destefanis, Rizza, Central Bank Independence and Democracy: Does Corporatism Matter? RISS 2007; available at http://econpapers.repec.org/article/vepjournl/y_3a2007_3av_3a115_3ai_3a4_3ap_3a477-502.htm.
Autiero, Labor market coordination systems and unemployment performance in some OECD countries, JoS-E 2008, available at http://econpapers.repec.org/article/eeesoceco/v_3a37_3ay_3a2008_3ai_3a5_3ap_3a1846-1855.htm.
I am currently working on the Beveridge Curve, also relying on this centralisation-coordination distinction, and would be delighted to pursue interaction about this issue.
Best,
S.
I agree with Sergio. The distinction between centralization and coordination is pertinent: highly coordinated but at the same time decentralized systems might achieve similar results to the ones obtained by otherwise centralized set-ups.
Carlos.
I would like to thank Sergio and Carlos for their valuable answers. Both the reflections and the literature will be very useful. Moreover, I will take into the consideration Sergio's comment on the interaction about this issue.
Regards,
Ángel
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